US Interest Rate Decision Preview: Federal Reserve expected to stand pat for second consecutive meeting

The Federal Reserve is widely expected to leave its policy rate unchanged at 5.25%-5.5%.
Fed Chairman Jerome Powell will speak on the policy outlook in the post-meeting press conference.
The US Dollar valuation could be impacted by the statement language and FOMC Chairman Powell’s comments.

The Federal Reserve (Fed) is expected to leave its policy rate unchanged at the range of 5.25%-5.5% for the second consecutive time in November. The decision will be announced at 18:00 GMT and FOMC Chairman Jerome Powell will speak on the policy outlook and respond to questions in the post-meeting press conference, starting at 18:30 GMT.

The market positioning suggests that a no change in the Fed’s policy rate is fully priced in. However, investors still see a nearly 20% probability that the Fed will opt for one more 25 basis points (bps) interest-rate hike before the end of the year, as per the CME Group FedWatch Tool.

Economists at ABN Amro said that the Fed has reached the end of its tightening cycle and explain:

“We think July was the last hike of the cycle, and that benign core inflation readings will give the FOMC the confidence to keep policy on hold over the coming months.”

“We continue to expect the Fed to start cutting rates from next March. Falling inflation will push real rates higher, and the recent jump in bond yields also represents a significant tightening in financial conditions.”

When will the Fed announce policy decisions and how could they affect EUR/USD?

The Federal Reserve is scheduled to announce its interest rate decision and publish the monetary policy statement at 18:00 GMT. This will be followed by the post-meeting FOMC press conference at 18:30 GMT. Investors expect the Fed to leave the policy rate unchanged, while seeing a small chance of one more rate hike in the last policy meeting of the year in December.

Following the Fed’s decision to stand pat on rates in September, the benchmark 10-year US Treasury bond yield has climbed from 4.3% to 5%. Although the rise in yields was largely driven by the selling pressure surrounding the Treasury bonds on government shutdown fears, it caused a further tightening of financial conditions. In his most recent public appearance at the Economic Club of New York, Chairman Powell acknowledged that higher bond yields could have implications for the policy and added that they could take some pressure off of the Fed to raise rates.

Meanwhile, recent data releases from the US reaffirmed tight conditions in the labor market and the strength of the economy. Nonfarm Payrolls rose by 336,000 in September, the biggest one-month increase since January, and the US economy grew at an annualized rate of 4.9% in the third quarter.

FOMC speech tracker: Balanced approach ahead of November 1 meeting

Federal Reserve officials modeled their vocabulary towards a more balanced approach on their public appearances during late September and October, before the 10-day blackout period ahead of their November 1 FOMC meeting and interest rate decision. Balanced remarks, even by FOMC policymakers who had been leaning clearly hawkish recently such as Neal Kashkari or Loretta Mester, were more frequent this time around. At the same time, some board members who had been more balanced during the spring and summer, have leaned more dovish in the fall, like Christopher Waller or Patrick Harker.

That said, the general tone going into the meeting is quite balanced, well represented by Fed Chair Jerome Powell speech at the Economic Club of New York on October 19 and the last eight recorded appearances from Fed members having been had a generally balanced tone.

Date	Speaker	Result	Quote
Sep 22	Bowman*	Balanced	Further interest rate hikes likely with inflation still too high
Sep 22	Daly	Balanced	We need to go at a slower pace
Sep 25	Goolsbee*	Hawkish	Rates will have to stay higher for longer than markets had expected
Sep 25	Kashkari*	Balanced	Consumer spending continues to exceed expectations
Sep 26	Kashkari*	Balanced	One more rate hike this year
Sep 27	Kashkari*	Balanced	There is a risk interest rates might have to go higher
Sep 28	Goolsbee*	Dovish	Fed could return inflation to target without a recession
Sep 28	Barkin	Balanced	FOMC has time to see data before deciding what’s next for rates
Oct 1	Williams*	Hawkish	Fed is at or near peak for the Federal Funds Rate
Oct 2	Bowman*	Hawkish	Will likely be appropriate to raise rates further
Oct 2	Barr*	Balanced	Most important question is how long to hold interest rates at a sufficiently restrictive level
Oct 2	Mester	Hawkish	Will likely need to hike rates one more time this year
Oct 3	Bostic	Dovish	No urgency for the Fed to do anything more
Oct 3	Mester	Balanced	Likely to favor hike at next meeting if current economic situation holds
Oct 5	Daly	Balanced	With rise in yields, no need for additional tightening
Oct 9	Jefferson*	Dovish	I will consider higher bond yields when assessing the future rate path
Oct 9	Logan*	Balanced	Less need to hike rates if higher long-term rates are due to higher premiums
Oct 10	Kashkari*	Hawkish	We may have to raises rates further if the economy stays too strong
Oct 10	Bostic	Balanced	We don't need to increase rates any more
Oct 11	Bowman*	Hawkish	Interest rates may need to rise further
Oct 11	Waller*	Dovish	Markets are tightening and will do some of the work for us
Oct 11	Daly	Balanced	If bond yields are tight, that could be the equivalent of another rate hike
Oct 13	Harker*	Balanced	We are at the point where we can hold rates where they are
Oct 16	Goolsbee*	Dovish	Fall in US inflation is not just a blip
Oct 16	Harker*	Dovish	Current interest rate environment draining housing market of new buyers
Oct 17	Barkin	Balanced	I believe we have a restrictive policy stance
Oct 18	Bowman*	Balanced	Inflation has come down but remains too high
Oct 18	Waller*	Balanced	Too soon to tell if more policy rate action is needed
Oct 19	Powell*	Balanced	Jerome Powell says higher bond yields are producing tighter financial conditions
Oct 19	Logan*	Balanced	Not yet convinced we are moving to 2% inflation
Oct 20	Harker*	Balanced	Rates will need to stay high for a while
Oct 20	Bostic	Balanced	I don't think Fed will cut rates before middle of next year
Oct 20	Mester	Balanced	Fed is at or near peak of rate hike cycle

*Voting members in 2023.

FOMC speech counter

	TOTAL	Voting members	Non-voting members
Hawkish	5	4	1
Balanced	16	8	8
Dovish	6	5	1

This content has been partially generated by an AI model trained on a diverse range of data.

In case the Fed shuts the door to a December rate hike, the market positioning suggests that the US Dollar (USD) could weaken further against its rivals with the initial reaction. On the other hand, a hawkish tone could revive expectations for one more increase and provide a boost to the USD. Powell might cite the above-mentioned data and argue that the economy is healthy enough to handle additional tightening.

In case the Fed adopts a neutral stance and reiterates the data-dependent approach, investors could refrain from taking large positions ahead of Friday’s jobs report.

Analysts at TD Securities provide a brief preview of the potential market reaction to the Fed’s policy decisions:

“For the Fed, they will strike a hawkish tone, but we think the bar is higher for them to actually move the market. Markets are fully priced for US exceptionalism, and we note the decoupling of US macro trends and the US 10y yield.”

“We expect softer US data this week and another round of strong China data. With the USD running a new cyclical risk premium and long positioning quite elevated, the USD should struggle to hold onto recent gains this week.”

Eren Sengezer, European Session Lead Analyst at FXStreet, shares his technical outlook for EUR/USD: “The Relative Strength Index (RSI) indicator on the daily chart declined below 50 and EUR/USD fell below the 20-day Simple Moving Average (SMA) early Wednesday, pointing to a bearish tilt in the short-term outlook.”

Eren also points out the key levels for the pair: “1.0500 (psychological level, static level) aligns as first support for the pair before 1.0450 (end-point of the July-October downtrend) and 1.0400 (psychological level, static level). On the upside, resistances are located at 1.0650 (20-day SMA, Fibonacci 23.6% retracement), 1.0750 (Fibonacci 38.2% retracement) and 1.0800 (100-day SMA, 200-day SMA).”

Economic Indicator

United States Fed Interest Rate Decision

With a pre-set regularity, a nation's central bank has an economic policy meeting, in which board members took different measures, the most relevant one being the interest rate that it will charge on loans and advances to commercial banks. In the US, the Board of Governors of the Federal Reserve meets at intervals of five to eight weeks, in which they announce their latest decisions. A rate hike tends to boost the US dollar, as it is understood as a sign of healthy inflation. A rate cut, on the other hand, is seen as a sign of economic and inflationary woes and, therefore, tends to weaken the USD. If rates remain unchanged, attention turns to the tone of the FOMC statement, and whether the tone is hawkish, or dovish over future developments of inflation.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.